Argentinian Bonds Are Tanking In The Wake Of The Country's Latest Round With Hedge Funder Paul Singer

Paul
Singer made it clear he was not going to take no for an
answer from Argentina when he had a Ghanaian Court seize the
country's naval vessel, the ARA Libertad last month.

Since then, most of the drama has played out off the high seas
and in a New York Court.

Last week, Judge Griesa ordered Argentina to pay Singer's hedge
fund Elliott Capital the $1.3 billion that it's owed after an
investment in Argentine bonds in 2001. The bonds mature in 2017.

Most hedge funds that made that same investment restructured with
Argentina, taking haircuts of up to 70% — but not Singer. He
wants the full amount, and for now, the Court says he should get
his payments along with other restructured bondholders starting
in December.

There's still a few legal moves Argentina can make to evade the
order, and President Cristina Fernandez de Kirchner has said that
she will not pay Singer or any of the other "vulture funds"
looking for money.

In the meantime, the yield on the Argentine bonds Singer holds
has soared (chart below, from Bloomberg)
while the price of those bonds has plummeted.

Dollar bonds due 2017 have tumbled 5.6 cents since Singer's
Elliott
Management Corp. on Nov. 6 sought an expedited ruling on
whether Argentina must pay creditors of defaulted debt when it
makes interest payments on more than $3 billion of restructured
bonds next month. The notes, issued under New York law, fell to a
record 74.71 cents on Nov. 9 after Judge Thomas Griesa said he
will decide by Dec. 1 how much Argentina needs to pay so-called
holdouts, the day before $42 million of interest comes due.

Bloomberg, Business Insider

This is dramatic, and according to a Citi
research note on the issue, it's also probably not going
anywhere.

We find it difficult to imagine Cristina
Kirchner stating that she is willing to concede and pay the
holdouts (effectively a defeat) if the appeals process turns
adverse. Furthermore, at this juncture, Cristina’s entire
political focus is elsewhere. On the one hand, the country just
went through the largest anti-government demonstrations since the
return of Democracy almost 30 years ago. Despite this, from the
government’s perspective, at this juncture they seem to be
single-mindedly focused on what they have labeled as 7D. December
7 is the date the government interprets that the media law
approved in 2009 will go into effect.

The authorities have turned the date into a key turning point
when conflict between powers (the media vs. the executive) gets
resolved. The Fernandez de Kirchner camp has made this a
foundational date. Therefore, while the political focus is on
maneuvering for this event, we find it difficult to
imagine Cristina Kirchner making it explicit that they choose to
signal that Argentina could settle with the holdouts (a sign of
weakness, unacceptable to the president) over running the risk of
a technical default.

So yeah, it's either stand down or default, and we know Argentina
isn't afraid of the latter at all.